Title IV of the Dodd-Frank Act imposes new registration and reporting requirements on hedge funds and private equity firms. Specifically, Title IV requires investment advisers to private investment funds to register with the Securities and Exchange Commission (SEC) under the Investment Advisers Act of 1940. As a result of Title IV’s registration requirements, advisers to private funds must maintain records and file reports with the SEC, which are made available to other regulators, including the Financial Stability Oversight Council (FSOC).

Requiring all advisers to private funds to maintain records and file reports with the SEC does little to improve the SEC’s ability to meet its mission, while weighing it down with unnecessary tasks and stifling rather than promoting capital formation.

A real life example from recent witness testimony (.pdf) shows how The Riverside Company (a private equity firm) nearly quadrupled the earnings of Virginia-based Commonwealth Laminating and Coating (CLC) during the 4 1⁄2 years CLC was owned by Riverside. Together, Riverside and CLC grew jobs by 73% — adding 61 jobs in Martinsville, VA — and provided a significant return to the teachers, firefighters and government employee pensions funds that invested through Riverside.

The Bottom Line:

The Dodd-Frank Act was not written in stone or handed down from Mount Sinai, and Congress has an obligation to amend or repeal those provisions that did not cause or contribute to the financial crisis and whose costs outweigh their purported benefits.

The Solution:

The bipartisan H.R. 1105 – which the Financial Services Committee reported by a 38-18 (.pdf) vote on June 19, 2013, would exempt advisers to certain private equity funds from the new registration requirements imposed by Title IV of the Dodd-Frank Act. H.R. 1105 would exempt from SEC registration advisers to private equity funds that have not borrowed and that do not have outstanding a principal amount in excess of twice their funded capital commitments.